Question

Accounting or Bonds Sold at a Discount The Biltmore National Bank raised capital through the sale of $110 million face value of eight percent coupon rate, ten-year bonds. The bonds paid interest semiannually and were sold at a time when equivalent risk-rated bonds carried a yield rate of ten percent. Round all answers to the nearest whole number. a. Calculate the proceeds that The Biltmore National Bank received from the sale of the eight percent bonds. $ b. Calculate the interest expense on the bonds for the first year that the bonds are outstanding. $ C. Calculate the book value of the bonds at the end of the first year. $

Answer 1

a. Bond Proceeds Period Amount luf@ 5% 1-20 $4.400.000 (HOM(x) 44] 12.462 20 $ 110,000,000 0.377 Proceeds Pu S4,832,800 41,470,00 $ 96,302,800 B Interest Expense freest year $ 96,302,800 (x) Sl. (ist installment) $4815, 140 first year (and Installmet) = $ 96,30 2,800 (+) [481S 140-4400,000] 5% $ 4,835,897 Total Interest = $9, 651,037. Expense ist Book valve @ End of year Afted 1st installment 96302,800 (t) [4875140-4400,000 - $96,717,940 4835897-44000.. o @ year End -2 96,717, 940 (+) Cafter and Irestalues) -> $97, 153,837